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FOR IMMEDIATE RELEASE
Contact: Carolyn Hickey
Phone: 703-243-9262

Arlington, VA (June 20, 2005) – Hospitals and other health care providers annually purchase more than $270 billions of dollars worth of medical devices, office equipment, hospital supplies and pharmaceuticals. To save money, hospitals deploy a strategy that is common in other industries—negotiating for volume discounts—often using the services of group purchasing organizations, or if they are large enough, health systems or integrated delivery networks (IDNs) act like their own GPO. Through this strategy, hospitals save between 10 to 15 percent totaling between $21.8 billion and $38.7 billion, for hospitals and other providers in CY 2004, according to a new report released today by the Health Industry Group Purchasing Association (HIGPA). However, recent federal and state government activities could hinder hospitals ability to use the power of group purchasing, and a one percentage point decline in GPO-generated savings which would occur if restrictions were imposed on GPO contracting processes, would result in an increase in total public and private expenditures for health services and supplies of between $2.18 billion and $2.58 billion.

GPOs and health systems that have the purchasing power of GPOs help providers achieve cost savings and efficiencies by aggregating purchasing volume and contracting functions to negotiate discounts with manufacturers, distributors and other supply companies. Given their important role in the health care delivery system, it is crucial to have clinical, economic and legal data to detail the value that group purchasing provides the health care system. It was for this reason the study, entitled, A Cost Savings and Marketplace Analysis of the Health Care Group Purchasing Industry, was commissioned by HIGPA to Muse & Associates, a health care research firm based in Washington, D.C.

Muse & Associates coined the term “health care purchasing entities” to refer to both GPOs and IDNs, who purchase supplies in a similar fashion to GPOs, leveraging their volume for discounts.

The study found that implementing additional restrictions on the GPO business model, such as the provisions called forth in U.S. Senate legislation introduced last year, would result in an increase in expenditures in CY 2004 for several public health care programs. For every one percentage point decline in the rate of GPO-generated savings, or cost savings of 9 to 14 percent:

• Medicare - expenditures would increase between $613 million to $725 million
• Medicaid - expenditures would increase between $443 million to $524 million
• Department of Veterans Affairs - expenditures would increase between $69 million to $81 million
• Department of Defense - expenditures would increase between $40 million to $47 million
• Workers’ Compensation Program - expenditures would increase between $37 million to $45 million

“Given that sixty percent of hospitals lose money providing patient care, by belonging to one or more GPOs, providers are controlling their purchasing activities while simultaneously achieving cost savings and supply chain efficiencies,” said HIGPA President and CEO Robert Betz, Ph.D. “This study validates the cost savings GPOs and IDNs bring to all players in the health care supply chain—hospitals, other providers, suppliers and patients.”

The study, which includes large IDNs with GPOs, also concluded the following about the GPO and IDN marketplace:

• Potential purchasing marketplace was $274 billion in CY 2004, which includes hospitals ($246.1 billion) and nursing homes ($27.9 billion)
• Hospitals utilize group purchasing strategies to purchase between $196.5 billion and $219.2 billion in supplies in CY 2004
• Pharmaceutical expenditures reached an estimated $30.1 billion in hospitals and about $2.2 billion in nursing homes in CY 2004.
• Medical/surgical equipment and supplies expenditures are estimated to have totaled $46.8 billion in hospitals and $2.0 billion nursing homes in CY 2004.

To obtain a copy of this study contact HIGPA’s Director of Communications, Carolyn Hickey, at (703) 243-9262.

HIGPA is a chartered trade association of over 140 health care purchasing and supply chain organizations. HIGPA's Industry Members include purchasing groups, integrated delivery networks, associations, and health care provider alliances. HIGPA's Trading Partner members include many of the world's leading health care product manufacturers, distributors, wholesalers and related suppliers. According to a recent study conducted by a former principal analyst at the Congressional Budget Office, hospitals save patients over $38 billion each year by purchasing products through group contracts.

To learn more about HIGPA or the health care purchasing industry, visit www.higpa.org or call 703-243-9262.

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